TESCO has reached an agreement to merge with food wholesaler Booker in a £3.7 billion deal.

The supermarket giant said the agreement will create "the UK's leading food business" and deliver significant efficiency savings for the combined group.

The chief executive of the wholesaler which has a base in Osney Mead, Oxford, Charlie Wilson, will join the combined group's board and executive committee.

He said: "Booker is committed to improving choice, prices and service for the independent retailers, caterers and small businesses that we are proud to serve.

"We believe that joining forces with Tesco offers the potential to bring major benefits to end-consumers, our customers, suppliers, colleagues and shareholders."

Outlining the benefits of the merger, the companies said it would "delight consumers with better availability of quality food at attractive prices", help independent retailers and cut food waste.

The deal values Booker at £3.7 billion, or 205.3p per share.

It represents a 12% premium on Booker's closing price of 183.1p on January 26.

Booker shareholders will hold 16% of the combined entity and will receive 42.6p in cash, Tesco said.

Shareholders have been asked to approve the deal in a vote.

Tesco chief executive Dave Lewis said: "Tesco has made significant progress in turning around our UK retail business.

"This merger with Booker will further enhance Tesco's growth prospects by creating the UK's leading food business with combined expertise in retail, wholesale, supply chain and digital.

"Wherever food is prepared and eaten - 'in home' or 'out of home' - we will meet this opportunity with the widest choice and best service available."